Measures that Affect Currencies / Measures that Affect Trade

I have found the recent discussions of "currencywars" hard to follow. There seems to be a fear that many governments are taking actions which cause their currency to decline in value, in the interest of pursuing competitivedevaluations. I'm not convinced. It seems to me that currency related measures are somewhat like trade related measures, in the following sense.

There are a lot of things a government might do that can affect a currency's value. However, not all of these are done for that purpose. Take interest rates, for example. When governments lower key interest rates, their main goal is to increase lending, and thus investment, and thus economic growth. Will that have an impact on the currency level? Yes, in a number of ways. In the short term, it might discourage foreign investors from putting their money in certain domestic financial instruments, lowering demand for the domestic currency and reducing its value. On the other hand, in the long run, it might help the economy grow (or it might not, depending on your view), strengthening the domestic currency as foreign investment rolls in.

Similarly, with trade, almost all government measures will have some impact on trade. But not all such measures have an effect on trade as their main goal. For example, take product safety regulation. There will almost certainly be an effect on trade (ranging from incidental to significant) from any attempt to promote safer products. But not all effects on trade are problematic, either in terms of setting the right policy or in terms of complying with trade rules.

All in all, I'm not sure there is much of a problem here. I think it is important to come up with rules (in both areas) that clearly define what kinds of measures we are concerned with. But worring about any and all measures that affect currencies or affect trade is too much, in my view.

Comments

Measures that Affect Currencies / Measures that Affect Trade

I have found the recent discussions of "currencywars" hard to follow. There seems to be a fear that many governments are taking actions which cause their currency to decline in value, in the interest of pursuing competitivedevaluations. I'm not convinced. It seems to me that currency related measures are somewhat like trade related measures, in the following sense.

There are a lot of things a government might do that can affect a currency's value. However, not all of these are done for that purpose. Take interest rates, for example. When governments lower key interest rates, their main goal is to increase lending, and thus investment, and thus economic growth. Will that have an impact on the currency level? Yes, in a number of ways. In the short term, it might discourage foreign investors from putting their money in certain domestic financial instruments, lowering demand for the domestic currency and reducing its value. On the other hand, in the long run, it might help the economy grow (or it might not, depending on your view), strengthening the domestic currency as foreign investment rolls in.

Similarly, with trade, almost all government measures will have some impact on trade. But not all such measures have an effect on trade as their main goal. For example, take product safety regulation. There will almost certainly be an effect on trade (ranging from incidental to significant) from any attempt to promote safer products. But not all effects on trade are problematic, either in terms of setting the right policy or in terms of complying with trade rules.

All in all, I'm not sure there is much of a problem here. I think it is important to come up with rules (in both areas) that clearly define what kinds of measures we are concerned with. But worring about any and all measures that affect currencies or affect trade is too much, in my view.